Now May Be The Time To Buy Into The Gold Majors

The proposed Barrick/Randgold merger, assuming it is implemented, will likely lead to a positive re-rating of the whole sector.

Randgold’s management has been brought in by Barrick in an attempt to change the latter’s management philosophy for the better.

Barrick shareholders may not be happy with a greater involvement in Africa, but Randgold has seen over a decade of virtually uninterrupted growth, wholly in the ‘Dark Continent’.

A more liberal dividend policy is likely to be implemented by Barrick, in itself helping to stimulate investment interest.

The saying goes that the best time to buy into a market is when ‘blood is running in the streets’. After a series of mostly disappointing Q3 results, media and commentators have been climbing into the gold majors, and many of these have seen their stock prices sink to new interim lows. Now may thus well be the time to climb back into investing in these stocks as they are likely to be at, or near, their low points as long as the gold price remains where it is at the moment, or moves higher over the remainder of the year as we think it will…..

Link to my latest article on Seeking Alpha on the proposed Barrick/randgold merger

Summary

Top gold miners Barrick Gold and Randgold Resources are planning to merge in an US$18 billion plus all-share deal.

Key operating management positions will be held by Randgold executives with the intent of applying Randgold’s leaner and meaner ethos to Barrick’s management and operations.

The merged company will majority own and operate five of the top ten Tier One global gold mining assets and will again become the world’s biggest gold mining company.

If I were a Barrick Gold (NYSE:ABX) shareholder, I would be enthused about the proposed merger of the company with Randgold Resources (GOLD). Not only would Barrick be merging with one of the most successful companies in the gold mining universe over the past several years, it will return it to being the world’s largest gold miner (eclipsing Newmont Mining (NEM) – which has only just become the current No.1) – but also by effectively buying new management with a totally different approach to the top tier gold mining sector. While Barrick’s current Chairman, ex-Goldman Sachs banker John Thornton, will be Executive Chairman of the combined company, two key executive management positions will be held by Randgold executives Mark Bristow as President and CEO and Graham Shuttleworth as Senior Executive Vice President and Chief Financial Officer. In some respects, the merger could thus almost be seen as a reverse take-over. According to a quote in the UK’s Daily Telegraph newspaper, the Randgold execs will have the brief to “implement the Randgold way” across the enlarged company…….

As followers of the company will be aware Randgold Resources has had to overcome a succession of problems at its big Tongon gold mine in Côte d’Ivoire – initially by technical problems at the mill and most recently by work stoppages by its labour force. Although a relatively short life operation – it has around three and a half years’ life remaining based on its existing resource, although the company is working to expand this through brownfields exploration around the current operation.

Randgold CEO, Mark Bristow, is a big supporter of new gold mining exploration in Côte d’Ivoire and the country’s government’s attitude towards mining investment and development and is working hard to try and find new projects there which fit in with its new mine development policies.

Bristow tends to visit all the company’s operations each quarter ahead of the quarterly financial announcements – 2018 Q1 figures are due in the next 2 weeks. On a visit by Bristow to Côte d’Ivoire last week the company made the following statement on the latest situation at Tongon and the intent to make up any lost production stemming from the recent work stoppages.

Production at Randgold’s Tongon gold mine was impacted during the first quarter of 2018 by a series of work stoppages which started with the employees of the mining contractor and then spread to other operations.

Management said while this would impact on the mine’s production guidance of 290 000 ounces for 2018, it was making a determined effort to recover most of the lost output, with operations now back at full capacity. To mitigate the downtime effect and lost plant throughput, Tongon processed ore from the run-of-mine and scats stockpiles during the stoppages and also used the opportunity to upgrade parts of the plant to achieve a higher and more consistent throughput going forward.

Chief executive Mark Bristow told a local media briefing that the mine’s management had been supported in resolving the situation by the highest level of the government as well as parliament members and local authorities, and, along with the workers and union leadership, these parties had also agreed on a constructive process to workshop solutions and prevent similar issues in future. It was encouraging to note, he said, that government fully acknowledges the importance of Randgold and Tongon to the Ivorian economy, and the fact that Tongon represents the single largest investment in the country’s mining industry.

“The history of Tongon has reflected the occasionally turbulent socio-political nature of its environment and a misunderstanding of the mining business which is a relatively new activity in the country, but management has dealt effectively with the challenges that have come their way. The mine is managed by a majority Ivorian team and of its 1,700 employees, only 40 are expatriates. Their record speaks for itself: since it was commissioned in 2010 Tongon has produced 2.7 million ounces of gold and in 2017 it posted record results, despite the slow start to the year,” Bristow said.

“Tongon has three-and-a-half years of life left as things stand but we are actively looking for means to extend this and a number of exciting near-mine opportunities are currently being evaluated by the exploration team. We’re also exploring for new gold discoveries elsewhere in our large permit portfolio in Côte d’Ivoire, where we intend to retain a long term presence.”

At the same time, however, Tongon is planning for life after its eventual closure by developing an economically viable agribusiness to provide replacement income for former workers and the surrounding communities in line with its sustainable development policy.

We can probably expect a couple of further statements on the company’s other operations ahead of the release of the Q1 figures due on May 10th. Randgold (LSE: RRS, NASDAQ: GOLD) has been one of the foremost gold mining growth stories with current annual gold production of some 40.9 tonnes putting it in 15th place among the world’s major gold miners, according to precious metals consultancy Metals Focus (See: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap.

West and Central African focused gold miner, Randgold Resources, invariably provides updates on its key operations in the runup to the big Mining Indaba meeting in Cape Town alongside which the company, now traditionally. announces it Q4 and prior year figures. We’ve already reported here on the big new Kibali mine, which has been built in a remote part of the north-eastern Democratic Republic of Congo which is due to become the company’s largest gold mine, but up until now the Loulo-Gounkoto complex in Mali has been the company’s largest operation in terms of gold production.

Ehe company says its Loulo-Gounkoto gold mining complex is on track to improve on its record performance in 2016, with last year’s production expected to reach a new peak and at lower cash costs of production, Chiaka Berthe, the company’s general manager of its West African operations, said to the media in Bamako, the Malian capital..

Speaking at the quarterly update for local media, Berthe said this positioned the complex strongly to continue rolling out its 10-year business plan, which targets production in excess of 600,000 ounces per year.

Berthe announced that the Malian ministry of mines had approved the development of a super pit at the Gounkoto opencast mine. The existing mining convention is being reviewed to accommodate this new investment.

Also at the briefing, Randgold chief executive Mark Bristow said the company’s continuing investment in Mali had shown the way for others to follow, and the current development of new mines would bring additional production on line and increase the already considerable contribution the mining industry makes to the country’s economy.

Group regional manager West Africa Mahamadou Samake also highlighted the importance of maintaining a fiscal and regulatory environment capable of attracting investment and re-investment in the mining sector.

“It is therefore imperative that the current mining code review is undertaken with this objective in mind, and any proposed changes should be made in light of the code’s relative attractiveness compared to surrounding countries which are competing for the same exploration and investment dollars. This is particularly important in coping with the challenges inherent in developing and operating a mine in an infrastructurally challenged country like Mali, and the difficulty of finding replacement reserves. The government should focus on working with the industry to maintain Mali’s position as one of the premier destinations for mining investment in West Africa,” Samake said.

Bristow also appealed to Mali to consult with its neighbours in finding a cross-border solution to the growing problem of illegal mining. In some parts of Mali this was now out of control, he said, and the damage to property and resources, if it was allowed to continue, would discourage global investors.

He noted that Randgold and the Malian fiscal authorities were working together to resolve their outstanding tax and TVA issues.

The company’s full Q4 and FY2017 operational results and financials are due to be released next Monday, when Bristow will make his presentation in Cape Town.

Africa-focused gold miner, Randgold Resources has a remarkable track record in developing gold mining operations in a part of the world most of its Tier 1 gold mining peers avoid – West and Central Africa It has built up a major gold production base in Mali and Cote d’Ivoire, but it deserves particular credit for its development and operation of the Kibali open pit and underground operation in one of the remotest parts of the African continent in the far northeast of the Democratic Republic of Congo (DRC), close to the border with South Sudan. The logistics of building what is probably now Africa’s single largest mine about as far from the coast as any mine could be, will have been daunting, yet Randgold brought Kibali on stream ahead of schedule and within its estimated cost parameters.

Kibali is owned 45% by Randgold and 45% by the far larger gold miner, Anglogold Ashanti, with the balance owned by DRC parastatal SOKIMO. Even though Angolgold is the much larger company it ceded development and management of the Kibali mine to Randgold due to the latter’s particular expertise in running mining operations in remote areas of Africa and, perhaps most importantly, maintaining good working relationships with the host governments – a skill where many of the other gold majors fall short.

It is now eight years and $2.5 billion since Randgold started developing Kibali, and the giant gold mine is expected to be in full production this year following the successful commissioning of its underground operation’s integrated automated ore handling and hoisting system.

Randgold chief executive Mark Bristow, who is touring his company’s African mines en route to Cape Town for this year’s Mining Indaba Conference, told local journalists in Kinshasa in the DRC that the mine was on track to produce its targeted plus 700,000 ounces of gold in 2018, making it Africa’s largest gold mine and one of the largest of its kind in the world.

Its high level of mechanisation, which features multiple driverless loaders operating with full automation as well as a single haulage drive with a high-strength surface, is believed to be a first for the gold mining industry in Africa.

“The past quarter has been a particularly busy one for Kibali. In addition to completing the underground haulage and hoisting system, the team has settled the processing challenges, improving the recovery while keeping throughput above the plant’s nameplate design level. At the same time, the mine’s conversion to the latest ISO 14001:2015 environmental standard was successfully certified and it readied itself for alignment with the new, and yet to be published, ISO 45001 safety standards,” Bristow said.

“All that now still remains to be done is to ramp-up the underground production and complete the construction of Azambi, Kibali’s third new hydropower station, which is scheduled to be plugged into the grid by the middle of this year.”

Bristow noted that with development expenditure tapering off, Kibali should now be in a position to start repaying its capital loans. Unfortunately, Bristow commented, due to the continued non-repayment of tax credits to the tune of $192 million, Kibali’s shareholders have had to inject more money into the operation during the past year to enable the mine to pay its creditors.

“Over the past eight years, while Kibali was still a work in progress, it has paid $2.25 billion to the state and people of the DRC in the form of taxes, permits, infrastructure, salaries and payments to local suppliers. Its shareholders, on the other hand, have not as yet received a return on their investment,” Bristow said.

“The surprise re-tabling of the controversial new draft mining code, which takes no account of the industry’s very serious concerns about the negative impact it will have on any prospect of further investment in this sector, is particularly disappointing. I appeal again to the government to engage with the industry in the formulation of a code that will stimulate this key component of the DRC’s economy instead of crippling it.” said Bristow.

Bristow stressed that Randgold remained committed to a future in the DRC, and was already hunting for new development opportunities there. In the DRC as in its other host countries, Randgold regarded itself as a partner of the government and the people, and its view on this issue should be seen not as unconsidered criticism but as a plea, from a major investor, for an outcome that will benefit all these partners equitably.

So the Kibali development has not been without its problems, but Bristow has a major point in that if the DRC does not put its mining code and its government-industry relations in order it could dissuade future external investment in the further development of the country’s very substantial mineral potential. Geologically it is one of the world’s richest nations with enormous resources of precious, base and key industrial metals just waiting to be exploited.

We should learn more about progress at Kibali and the company’s dealings with the DRC Government, as well as on Randgold’s other operations and exploration progress when CEO Bristow presides over the release of the Q4 and FY 2017 financial and operational results on February 5th in Cape Town.

One of the other sites on which some of my articles are posted is U.S. site Seeking Alpha but this doesn’t allow me to publish the same articles here so if you’d like to read them you’ll need to read them on Seeking Alpha. My three most recent articles here relate to the performance of the precious metals stocks I recommended at the end of last year – rather better than I had anticipated, particularly with respects of what are probably the top two royalty stocks, Franco Nevada and Royal Gold which both comfortably outperformed the Dow and the S&P500, despite the somewhat disappointing progress of the gold price, and a second one is on Randgold’s Q3, which on first look was pretty dire and the stock price plunged accordingly, but in fact was largely in the company’s own forecasts and still leaves it on track to reach the top end of its 2017 guidance. Overall Randgold has been the star performing major gold miner and the recent stock price dip should provide a buying opportunity.

I also published one showing that Newmont is overtaking Barrick as the world’s No. 1 gold producing company – and may even do so this year:

In a statement to local media Randgold Resources CEO, and driving force, Mark Bristow, reported excellent progress at its 45%-owned Kibali gold mine in the DRC, which it operates. It built the mine ahead of schedule as an open pit operation with the underground section to follow, despite it being located in one of the most remote parts of the African continent in the northeast of the mineral rich Democratic Republic of Congo (DRC) close to its border with South Sudan. The construction logistics were daunting with virtually all the heavy equipment needing to be trucked to the site from ports far away on Africa’s east coast.

Kibali is also owned as to 45% by the much larger Anglogold Ashanti, which ceded construction and management to Randgold because of the latter’s strong prior expertise in constructing and operating gold mines in Mali and Cote d’Ivoire and in maintaining good relations with the governments in those nations – even through some major political changes. The balance of 10% of Kibali is owned by DRC parastatal, Sokimo. However, while technical progress has perhaps exceeded expectations there are obviously some potential political pitfalls ahead if they cannot be warded off through negotiations with government, Bristow also warned.

The Kibali gold mine, nowadays one of the largest such operations in Africa, remains on track to achieve its production target of 610,000 ounces this year as its underground operations and the integration and automation of the vertical shaft enters the final commissioning and automation stage, Bristow told the audience at an event in DRC capital, Kinshasa. The mine is anticipating a significant increase in production once the final shaft commissioning, which remains on a tight schedule, has been completed.

At a briefing for local media, Bristow said in spite of the high level of activity at the mine, there had been a significant improvement in the safety statistics, with its total injury frequency rate continuing to decrease and lost time injury frequency rate down to 0.31 per million hours worked in the September quarter.

Following the anticipated completion of the underground mine in the fourth quarter, the only major capital project still in the works would be Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team. Bristow said the availability of self-generated hydropower and the mine’s high degree of mechanisation and automation were important factors in Kibali’s ability to sustain its profitability throughout the ups and downs of the gold price cycle.

To date, over $2 billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure and payments to local contractors and suppliers.

“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development. We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt – currently standing at over $200 million – owed to the mine by the government. TVA refunds, excess taxes and royalties in violation of the country’s mining code, make up the bulk of this amount,” Bristow said.

Another troubling development was the recent re-introduction to parliament by the Ministry of Mines of a proposed new mining code which is exactly the same as the one the government withdrew in 2015 after it was comprehensively demonstrated that it would seriously damage or even destroy the Congolese mining industry.

“Randgold has proven and continues to prove that it is committed to the DRC and to the development of a gold mining industry capable of making a substantial and lasting contribution to the country’s economy. Despite all the challenges, including the volatile political climate and a deteriorating economy, we continue to invest here. Our exploration teams are searching for our next big discovery in the greenstone belt of the north-eastern DRC. In line with our local supply strategy, Kibali spent approximately $40 million with Congolese contractors in the past three months alone. We are developing substantial agribusiness and other community projects. And perhaps most important, we invest in the training and empowering of Congolese nationals, who already make up most of the Kibali management team, thus making a contribution of incalculable value to the expansion of the country’s skills base,” Bristow said.

“The DRC has all the materials for building a sustainable mining industry but that will require a fully committed partnership between the government on the one hand and the mining companies on the other. Despite recent indications to the contrary, we remain confident that such a partnership is within reach, and that the government will see the critical importance of maintaining a stable, investor-friendly fiscal and regulatory environment for the country’s mining sector. In this regard, we would welcome the opportunity to work with the government in jointly selecting an independent group of experts to benchmark the DRC mining code and its fiscal framework and to model the impact of the new proposed code, which we believe will be damaging to the development of the industry.”

These are, in effect, dire warnings by Bristow and illustrate some of the potential problems arising when working with the DRC government. The DRC has enormous mineral potential for the production of many strategic metals and minerals, but the kinds of problems noted by Bristow could have a serious impact on further potential inward investment in the mining sector and could also adversely affect ongoing operations in the country. The country had a hugely successful mining industry back in the mid 20th Century, but this largely fell into disrepair in the latter half of the century as foreign expertise was shunned. One hopes this will not happen again. The world needs the metals and minerals the DRC can supply.

For any other mining company, the Tongon gold mine, owned and operated by Randgold Resources, might be deemed a great success. But for Randgold, which likes to stick to its production projections for all its operations in West and Central Africa, it has been something of a problem child underperforming against its scheduled output targets due to a succession of technical issues. But even so it has still been a significant producer of the yellow metal at the kind of levels that would still be the envy of many other mid-sized gold mining companies.

Randgold CEO, Mark Bristow, on the occasion of a visit to the mine and to its host country ahead of the company’s second quarter results, due out the first week of August, has told the media in Cote d’Ivoire’s capital, Abidjan, that Tongon continues to ramp up production as it tracks its 2017 target of 285,000 ounces of gold, making it a globally significant gold producer, but with a relatively short four year life remaining. But Bristow went on to say that with Tongon now operating to plan, its focus had shifted to finding additional reserves and resources to replace depleted ounces and extend the mine’s life beyond its four years remaining. The chances are that Randgold will be able to achieve this as the area around Tongon is seen as highly prospective for smaller satellite orebodies – and the company has a good track record of eking extended lives out of its Malian gold operations – notably at Morila which is still producing gold despite originally being due for closure some years ago.

Bristow also confirmed his long held view of Cote d’Ivoire’s exceptional prospectivity and its positive attitude towards foreign investment in the gold mining sector.

Elsewhere in the West African nation, Bristow commented that Randgold’s exploration programmes have defined a large target at Boundiali in the Fonondara corridor, which he described as ‘potentially the most exciting gold prospect in West Africa’. The company has just completed its annual review of its exploration targets, which Bristow said had also highlighted very positive results from its other holdings in the country.

As to Tongon itself, and its contribution to the Ivorian economy, Bristow commented that last quarter it declared its second dividend, of which the government’s share, including taxes, was US$20 million (FCFA 12 billion). In total, Bristow claimed that the Tongon mine has contributed just under $1 billion (FCFA 520 billion) to the Ivorian economy in the form of royalties, taxes, dividends, salaries, payments to local suppliers and community investments since it started production in 2010.

We will presumably get a further update on Tongon when Randgold delivers its Q2 results on August 3rd when Bristow himself will also deliver an update to London analysts and media on the company’s overall performance so far this year and its future prospects. Randgold has, unlike most of the other large global gold miners, managed to keep itself debt free and cashflow positive through maintaing some very strict new mine investment criteria.

Generally the Q1 figures this year were better than Q1 2016 in terms of production, revenue and costs, but down on the record Q4 2016. The quarterly highlights as reported by the company were as follows:

BUILDING ON LAST YEAR’S RECORD RESULTS, RANDGOLD MAKES STRONG START TO 2017– Q1 results

KEY PERFORMANCE INDICATORS FOR THE Q1 ENDED 31 MARCH 2017• Gold production up 10% on corresponding quarter of prior year and down 15% on record Q4 2016
• Profit up 33% on corresponding quarter of prior year and down 10% quarter on quarter
• Total cash costs per ounce down 4% on corresponding quarter of prior year and up 13% quarter on quarter
• Cash increases 16% quarter on quarter to $600 million, with no debt
• Another solid operating quarter at Loulo-Gounkoto supported by high recoveries
• Morila tailings retreatment operation starts to deliver on plan and Domba project approved
• Tongon delivers steady performance with good cost control
• Kibali tracks guidance as it works to deliver on underground plan
• Group attributable reserves replaced at higher grade
• Busy quarter for greenfields exploration complemented by good progress on brownfields targets
• Shareholders approve 52% increase in annual dividend to $1.00 per shareRandgold Resources

Thus the company presents the figures in a positive light despite financials down on the previous quarter and cash costs up, although the latter will be partly due to the lower gold output. Net cash available increased to $600 million though which leaves the company well placed to take advantage of any M&A or new development and expansion opportunities without having to resort to borrowing.

Company CEO Mark Bristow is due to present to analysts in London at midday today and undoubtedly we’ll learn more about what is expected for the rest of the year then.

Randgold Resources, the biggest London listed gold miner by market capitalisation and the 14th largest gold producing company in the world, currently operates the two biggest gold mines in Africa according to consultancy Metals Focus – the Loulo-Gounkoto complex in Mali and Kibali in the DRC – and both are among the world’s Top 20 gold producing operations – See:World Top 20 Gold Miners and Mines.

Last year Loulo-Gounkoto, at No. 13 on the global list, was the bigger producer, but Kibali was experiencing some technical and operational difficulties which reduced its output a little, but still came in as the world’s 16th largest gold mine by production. It is currently putting the problems behind it as its underground operations build up to full output and it should regain its top spot among African gold mines by the end of the current year.

The mine is owned 45% by Randgold, 45% by Anglogold Ashanti, with the remaining 10% by DRC parastatal, Sokimo. Randgold built the mine – located in one of the most remote areas of the African continent close to the DRC’s north eastern border with South Sudan – and operates it.

The company’s latest statement on the mine and its progress is published here in full, but note CEO Mark Bristow’s warning about possible DRC governmental goalpost-moving on the country’s mining code:

KIBALI HEADS FOR FULL PRODUCTION AS UNDERGROUND MINE NEARS COMPLETION AND SECOND HYDROPOWER STATION IS COMMISSIONED

The Kibali gold mine’s underground operation, which will significantly increase production, is on track to start commissioning in the third quarter of this year, Randgold Resources chief executive Mark Bristow said at a media briefing.

The mine is forecast to deliver approximately 610,000 ounces of gold this year, up from 585,000 ounces in 2016, but annual production is scheduled to rise to around 750,000 ounces from 2018, when the underground operation will make it fully functional.

Bristow noted that Kibali ended 2016 with a creditable performance after having to contend with a range of operational challenges as well as the constraints imposed by limited open pit mining flexibility. In addition to dealing with these issues, the Kibali team succeeded in keeping the underground development on track, successfully constructing and commissioning four ultrafine grind mills in the metallurgy circuit, as well as progressing work on the mine’s second new hydropower station which was commissioned in February this year. The third and last of the new hydropower stations is currently being built by an all-Congolese contracting group.

“Kibali has stayed on course to become one of the world’s great gold mines despite the challenges of last year and the volatile political climate in the DRC at present,” he said.

“Randgold remains committed to the DRC and is confident that its government, politicians and civil society have the will as well as the capacity to work together to secure the country’s future. We therefore continue to invest in exploration here and to lead the way in developing the north eastern DRC as a major new gold mining region. Our engagement with the country and its people is also evident in our substantial investment in local economic development and community upliftment programmes. These include macro and micro agribusinesses designed not only to provide regional food security but to generate surplus produce for export.”

It was a source of concern, however, that the DRC government had once again signalled its intention of reviewing the country’s 2002 mining code with the clear intention of maximising state revenue, Bristow said. This could have a very negative impact not only on the mining industry but also on the economy.

“Now more than ever the DRC should be focused on retaining its existing investors and attracting new ones. It’s certainly not the time to harvest more from less for short term gain. It’s my sincere hope that this time round the government will engage the mining sector fully in the proposed review to achieve an outcome that will be in the best interests of the Congolese economy as well as the country’s mining sector,” he said.

“The existing code is in fact a good one but it is not always being applied effectively and there are still many mining operations that do not operate under the code. There are also a number of issues and challenges which mining companies are having to face which make operating in the DRC more challenging. In Kibali’s case, these issues include more than $200 million in unpaid TVA and duty refunds.”

Followers of perhaps the best performing gold mining major of the past few years are directed to the following article I’ve published on the Seeking Alpha website: Randgold: Tough Quarter, Good Results. Interestingly Randgold (LSE: RRS, NASDAQ: GOLD)’s stock price has not risen nearly as much as some of its peers but that is because of its far better performance while virtually all the other major gold stocks were dropping like stones. It has no debt, has not needed to take any impairments and is operating a progressive dividend policy where again most of its peers have been slashing their shareholder payments. It has thus just announced a 10% dividend increase to $0.66 a share.

Highlights from Q1 2016 are as follows:

Profits up 19% quarter on quarter and 25% on corresponding quarter of prior year

Production down 11% quarter on quarter but up 4% on corresponding quarter of prior year

Total cash cost/oz up 3% quarter on quarter but down 8% on corresponding quarter of prior year

Cash increases 19% to $253.8 million on the back of reduced total cash costs and higher gold price

Solid quarter from Loulo-Gounkoto with production in line with plan and significant decrease in total cash cost/oz

Morila delivers steady performance with lower costs

Tongon production impacted by quaternary crushers commissioning and power supply interruptions

For the record here follows a statement from Randgold Resources noting the success of its new Kibali mine in the DRC, which is already Africa’s biggest gold mine in terms of annual gold output. Kibali is jointly owned by Randgold and AngloGold Ashanti, each holding 45% with the balance owned by DRC parastatal SOKIMO. Randgold is the operator.

The Kibali gold mine in the Democratic Republic of Congo was the star performer in Randgold’s portfolio of operations in 2015, exceeding its target by 7% to contribute 642 720 ounces to the group’s record production for the year.

Speaking at a local media briefing here, Randgold chief executive Mark Bristow noted that the two-year-old operation’s remarkable success was a tribute to an effective cooperative effort which had united the developers, the authorities, the community, the contractors and suppliers in a strong commitment and a common purpose.

“It’s been a significant achievement for a country which is rich in mineral resources but has not always managed to make the most of this endowment. Kibali is going to make a major impact on the Congolese economy – it has already spent more than $1 billion with local service and goods providers – and I believe it will also be the flagship for the development of a major gold mining industry in this country,” he said.

Bristow cautioned, however, that Kibali was still a work in progress and faced many challenges as it worked towards its completion in 2018, when the underground mine was expected to be fully operational.

“The next two years will be particularly tough, as Kibali continues to ramp up its underground production within the constraints of a lower grade and the consequent need for a higher throughput, and we are therefore forecasting an output of 610 000 ounces for 2016 and 620 000 ounces for 2017,” he said.

“To ensure Kibali’s continued delivery, our partnership with government and the community will if anything have to be strengthened. For its part, government has to focus on the urgent need to establish an effective local administration, in an area where rapid population growth and the lack of functional structures are generating a complex social dynamic that will become increasingly difficult to deal with.”

Bristow said that despite the stressed gold market, the operational challenges at Kibali and socio-political issues in the DRC, Randgold remained committed to increasing its presence in the country, and had recently entered into a new joint-venture agreement – its third in the region – with government-owned Société Minière de Kilo-Moto SA (SOKIMO) and Moku Goldmines AG (Moku) for the Moku-Beverendi gold exploration project, along the same greenstone belt that hosts Kibali. In terms of the agreement with the owner of the project, Société Minière de Moku-Beverendi SA, Randgold can earn in a minimum 51% stake in the project by funding and conducting exploration and completing a prefeasibility study. This addition to its portfolio extends Randgold’s exploration footprint in the DRC to 7 824km², spanning the major gold belt in the north-east of the country.

“Our commitment to expanding our presence and stepping up our greenfields exploration here demonstrates our long term intent of finding world-class gold deposits and developing them into profitable mines, thus contributing to the DRC’s continuing evolution as a democratic society with a robust economy,” Bristow said.

“Randgold Resources’ (LSE: RRS, NASDAQ: GOLD) operations are strongly placed to generate robust cash flows even at gold prices below current levels and to continue delivering value to all stakeholders”, so says chief executive Mark Bristow in a release on the company’s 2015 annual report published today.

Randgold has arguably been the biggest gold mining success story of the past two decades (It was only established back in 1995 and was first listed in 1997). It has increased gold production from tiny beginnings to become the world’s 15th largest gold producer (according to consultancy Metals Focus) with an attributable output now of comfortably over 1 million ounces a year. It now numbers Africa’s two biggest gold mines – Kibali in the DRC and the Loulo-Gounkoto complex in Mali, both of which it built from scratch – among its operations, All this has been accomplished in a part of the world which some of its major gold mining peers feel is too risky in which to manage significant operations.

At Kibali in particular it succeeded in building a huge gold mine in one of the most remote parts of Africa, close to the DRC’s border with South Sudan, hundreds of miles from both Africa’s east and west coasts and with virtually no local infrastructure – a major logistical exercise in its own right. And yet it succeeded in bringing the mine on stream ahead of schedule. It is notable here that although it is in equal partnership with the world’s third largest gold miner, AngloGold Ashanti (both have 45% stakes), the latter ceded construction and operational control to its much smaller partner, presumably because of Randgold’s unparalleled record of building and operating mines in West Africa and its skills in navigating the often troubled political waters of the region.

What the gold mining industry needs, says Bristow, is to make new discoveries, as even a significant rise in the gold price and an injection of fresh capital will at best enable it to clear its debt, but will provide little scope for adding any value or reversing the production decline. Through its consistent investment in exploration and development Randgold, in contrast, was projecting sustained growth from a solid foundation.

“Our mines have been modelled to generate cash flows at gold prices well below the $1,000/oz level. Our positive production and cost profiles extend to a 10-year horizon, we have had no impairments or write-downs, and have substantial cash resources. Our exploration teams are not only replacing the ounces we deplete but are making significant progress in the hunt for our next big discovery. In fact, we are in a unique position to continue delivering value to all our stakeholders,” he says.

Randgold set a new annual production record of more than 1.2 million ounces in 2015, up 6% on the previous year, while reducing group total cash cost per ounce by 3% to $679. Strong cash flows from the operations boosted cash on hand by 158% to $213.4 million. However profit for the year was $212.8 million against the previous year’s $271.1 million, reflecting the decline in the gold price. The board has nevertheless still recommended a 10% increase in the annual dividend.

Also in the annual report, chairman Christopher Coleman reports that even in the current challenging market, Randgold is not reducing its investment in corporate and social programmes, in line with its philosophy that sustainability is central to all its activities.

“Randgold’s social initiatives extend far beyond the life of its mines. At all its operations, it is developing ambitious legacy projects designed to provide a permanent source of employment and economic opportunity to these communities. Based on agriculture, the primary building block of any developing economy, these range from training and funding would-be commercial farmers to a wide spectrum of agribusiness initiatives, many of which are already supplying local markets. The company is equally mindful of the health and safety of its employees, and it strives constantly to improve an already exemplary record in this regard,” he says.

Contrary to the position of many of its peers, Randgold, as noted above, also reaffirmed its intention to continue to pay a progressive ordinary dividend that will increase or at least be maintained annually. The board thus proposed the 10% increase in the 2015 dividend to $0.66 per share for approval at its annual general meeting on 3 May 2016. This is almost unique among major gold miners, most of which have been having to take big impairments in their balance sheets, have been having to cut debt and have been sharply reducing their dividend payments. Randgold has taken no impairments, has no debt and is raising dividends year on year.

Commenting on this statement, financial director Graham Shuttleworth said that at a time when the gold mining industry was focused on survival, Randgold was able to maintain its dividend policy on the back of last year’s strong performance. He confirmed that the company still intended to build its net cash position to approximately $500 million to provide financing flexibility for future new mine developments and other growth opportunities.

In separate announcements issued today Randgold Resouces and AngloGold Ashanti have both stated that Randgold has decided not to proceed with the proposed joint venture to redevelop AngloGold’s Obuasi gold mine – the original Ashanti gold mine – in Ghana.

To recap, on 16 September this year, the two companies had announced their intention to form a joint venture to rebuild the mine, which still has a very substantial good grade gold resource, despite its 118 year mining history. However, the proposal to undertake this would be, subject among other things to the completion of satisfactory due diligence by Randgold and the agreement of a revised development plan.

Randgold comments that after undertaking its own due diligence exercise into the mine and the redevelopment opportunity the mine affords, and following the work undertaken on the revised development plan, the company has determined that the development plan will not satisfy its own internal investment requirements. Accordingly, Randgold has decided to terminate the investment agreement entered into with AngloGold Ashanti, with immediate effect.

Randgold and AngloGold have a good history of working together on gold mining projects – initially in Mali – and most recently in what appears to be the very successful building of the totally new Kibali mine in the DRC which is now probably the most productive gold mine in the whole of Africa. There is a strong synergy between the two companies but obviously this was not strong enough to overcome the Randgold ethos of only developing projects in which it sees a strong return, and obviously Obuasi, with some significant ongoing social and technical problems, did not meet Randgold’s investment criteria, which have meant it has consistently outperformed its peers among the major and mid tier gold miners globally.

Randgold Chief Executive Mark Bristow commented that Randgold remained committed to creating real value for all its stakeholders by continuing to invest substantially in its exploration programmes with their proven record of success as well as by investigating potential growth opportunities presented by the market.

AngloGold noted in its statement that it remains committed to continue with its Limited Operating Phaseat the mine designed to resurrectoperations there at a smaller scale and at lower cost

AngloGold goesd on to note that this decision follows concerted efforts by both companies to improve the project’s returns and also to secure an appropriate set of consents from the Government of Ghana, within an ambitious timeframe that would have allowed for a feasibility decision on the redevelopment of the mine in early 2016. Although improvements have been identified, these have not been sufficient to commit to a substantial investment under the prevailing conditions.

The Minister of Lands and Natural Resources of Ghana has approved continuation of Obuasi’s limited operating phase during Q1 2016. Limited operations will be undertaken at reduced cost, compared to 2015, including maintaining the operations, security, environmental management, optimising the feasibility study, as well as ongoing sustainability work.

“We have made a concerted effort to unlock a new opportunity for Obuasi, and the work we have done lays a good foundation for the operation in the long term,” AngloGold Ashanti Chief Executive Officer Srinivasan Venkatakrishnan said. “But in the current environment, we believe it is prudent to conserve our resources and to revisit this opportunity when market conditions improve.”

Randgold Resources’ world class Tongon gold mine in Cote d’Ivoire has not been without its problems, but even so it has now paid off its shareholders’ loans of $448 million, used to partially fund its capital investment of $580 million, thereby moving it into a dividend-paying position.

Speaking at the mine’s quarterly briefing for local media, Randgold CEO, Mark Bristow described this as a significant achievement, particularly in the context of a global gold mining industry currently characterised by capital write-downs and impairments.

Although Tongon is only Randgold’s third largest mine – after Kibali in the DRC, and Loulo-Gounkoto in Mali – and is still operating below full capacity, it is a very significant gold mine by any standards, and is targeting gold output of 260,000 ounces, at a total cash cost of $820 per ounce, in the current year.

“Tongon has already paid close to $90 million to the Ivorian state in the form of royalties and taxes and the country will now benefit even more from the dividends the government will receive through its 10% carried interest in the mine as well as the increased revenue when Tongon starts paying full corporate tax at the end of this year,” Bristow said. He noted that since its commissioning five years ago, Tongon had also contributed more than $600 million to the Ivorian economy in the form of payments to local suppliers and had invested almost $6 million in community upliftment projects.

Bristow has also frequently described Cote d’Ivoire as being a highly prospective country in which to explore for new gold mining operations and has praised the government for its approach to foreign investment in the mining sector which it considers very favourable for attracting new business.

“Ongoing exploration around Tongon has increased its reserves after depletion by 18% since 2009, extending its remaining life by another year. We also continue to look for more multi-million ounce deposits elsewhere in this highly prospective country, and we are about to launch our biggest-ever exploration drive in Côte d’Ivoire. This will include a fresh look at the Nielle permit, which hosts Tongon, and a geophysical survey, followed by a diamond drilling programme, across our holdings in the north of the country,” he said.

He also cited Tongon as a particularly good example of the success of Randgold’s policy of recruiting, training and empowering nationals of its host countries to run world-class mines in Africa. The mine’s workforce is 97% Ivorian and only two members of its management team are not Ivorians.

Bristow also noted that Tongon has won the President’s Award as the best mine in Côte d’Ivoire for two successive years.